Negotiations - Final Paper Global MBA 2008 - Umberto Calderon

People negotiate all the time, even though they do not always realize that they are negotiating. Negotiation occurs mainly to solve problems arisen by discrepancies between two or more parties. In order to solve these problems, it is advisable that the negotiation be based upon principles, that is to take an approach on the interests of the parties, rather than the positions taken by them. Apart from achieving the specific objectives, the performance of a negotiation is based on good sense, efficiency, learning and the capacity to maintain or improve the relationship between the parties, and above all, on the capacity to create or capture the most of the value under consideration. Essential requirements to obtain a successful negotiation are: elaboration of a strategy, firmness, ethics, respect to the other party, empathy, confidence, flexibility, creativity, assertiveness, separation of persons from the problem, and patience.

2008

Negotiations Final Paper

People negotiate all the time, even though they do not always realize that they are negotiating. Negotiation occurs mainly to solve problems arisen by discrepancies between two or more parties. In order to solve these problems, it is advisable that the negotiation be based upon principles, that is to take an approach on the interests of the parties, rather than the positions taken by them. Apart from achieving the specific objectives, the performance of a negotiation is based on good sense, efficiency, learning and the capacity to maintain or improve the relationship between the parties, and above all, on the capacity to create or capture the most of the value under consideration. Essential requirements to obtain a successful negotiation are: elaboration of a strategy, firmness, ethics, respect to the other party, empathy, confidence, flexibility, creativity, assertiveness, separation of persons from the problem, and patience.

1. SUMMARY a. Executive Summary Negotiation is a process inherent to human being and is a matter of common sense. People negotiate all the time, even though they do not realize that they are negotiating. Negotiation can occurr as result of varied reasons that generate discrepancies between two or more parties: (a) how to share a limited resource, (b) to create something new that parties could not do on their own or (c) to resolve a problem between parties. In order to solve these problems, it is advisable that the negotiation be based upon principles, that is to take an approach on the interests of the parties, rather than the positions taken by them. Apart from achieving the specific objectives, the performance of a negotiation is based on good sense, efficiency, learning and the capacity to maintain or improve the relationship between the parties, and above all, on the capacity to create or capture the most of the value under consideration. No matter if it is the case of a bargaining (competitive) situation or “real” negotiation (cooperative, win‐win), essential requirements to obtain a successful negotiation are: elaboration of a strategy, firmness, ethics, respect to the other party, empathy, confidence, flexibility, creativity, assertiveness, separation of persons from the problem, and patience.

b. Summary of the Course Definition of Negotiation “Negotiation occurs when two or more parties attempt to find a mutually acceptable solution to a problem or dispute that neither party could resolve on his or her own” (Roy J. Lewicki, et al., 2003).

Distributive Bargaining Distributive negotiation is basically a conflict situation where the parties claim value, competing through a bargaining process. This way, the size of the "pie" is fix and the negotiation adds up to zero (win‐loose). It is also known as a type of negotiation based on positions (which is equivalent to decisions previously assumed) and its characteristic is to produce senseless agreements, since due to its human nature, the parties usually have tendency to confine within them, the ego identifies with the position (target) and the agreement gets complicated. It is also inefficient because it creates incentives that delay the agreement, since it is likely that the opening is initiated with an extreme position, which causes that decisions are hard to take and require longer time. Finally, this negotiation endangers the relationship, since the rough points may convert it into a confrontation of wills that tighten the relationship and may even destroy it, making the negotiation process more complicated since not only an agreement has to be looked for but also the parties are to be kept willing to negotiate.

Nevertheless, it should be admitted that this type of negotiation is a natural selection in many occasions and requires adequate planning, a strong execution and maintaining constant monitoring of the reaction of the other

3 Negotiations, Final Paper – Jorge Calderón ‐ Global MBA 2008

party. Likewise, some skills of the distributive bargaining are important at value claiming in any type of negotiation.

Integrative Negotiation On other side, a negotiation based on principles (integrative or cooperative) describes a way to negotiate focused on wishes and worries, considering that interests are the factors that define the problem. It interrelates the persons, separating them from the problem and orienting to comprehension of the needs and objectives of the other party. It focuses on its interests and opens a free flow of information to exchange ideas openly, which generates multiple options. The creativity and prioritization of similarities rather than differences (taking into consideration objective criteria to solve them), may create or capture the most of the value under consideration through agreements that satisfy the goals of the parties (extending the "size of the pie": win‐win).

Perceptions and Subjectivism When persons do not separate from the problem (getting involved with the situation), misunderstandings and personal offenses may arise, since negotiators may be victim of their own emotions, wrong perceptions and/or misunderstood attitudes.

"The understanding on how the other party thinks is not a useful activity that will help to solve the problem. His way of thinking is the problem". (Roger Fisher et. al., 1991). This resumes the importance of subjectivism: each person perceives the world in a different way. If we understand this, we will be able to guide and administer the negotiation. For example, negotiators may fail when they do not perceive the real potential during a specific situation of the negotiation. Likewise, persons have a scientifically demonstrated tendency to see in a selective way what they want to see, or what they are used to see (in many cases in a different way to ours). This is the base to understand that the problem in a negotiation arises from the way the other party perceives the objective reality that generated it, and, if we are not conscious of this fact, we will be unable to settle a negotiation even if there is a wide margin to solve it.

We should also be aware that a source of information may take us to multiple interpretation, and that each person is free, according to its motivation, the environment where it developed and passed experiences, to interpret diverse situations in a completely subjective manner. For that reason and the overload of information, learned mental shortcuts might probably be used so "save" time when perceiving or evaluating matters.

Understanding and Interdependence In the same way, the differences in understanding the problem, either by asymmetry in the quality or quantity of information or, for intellectual quality of the other party, there may be different ideas about the truth or what happens in the negotiation. The conflict of interests between both parties may also represent a problem to be solved for a successful negotiation, insofar as the interests, goals, needs, values, and priorities can (and actually

4 Negotiations, Final Paper – Jorge Calderón ‐ Global MBA 2008

do) change diametrically between the parties. Clear as it is now, the negotiation is interpersonal and is used whenever individual achievement of objectives is impossible. In this sense, we can clearly understand the concept and management of interdependence between the parties, since they must understand the way one depends upon the other to achieve their objectives and goals (many times by interlocking goals): "The results depend on what I do, but also on what the others do".

Ethics From the analysis of the two forms of negotiation it can be deduced that by admitting the exchange of ideas, the discussion and explanation, the seek for joint solutions as well as the interest for the other person, the negotiation based on principles endorses the presence of some values (equality, freedom, truthfulness, faithfulness, justice‐ equity). Ethics in negotiation is a matter of conscience. It refers to what is fair or not and what is permitted or not (Should I?, Ought I?). When we refer to fairness, we will have to take on account equality, equity (about contributions) and need (I quit because they need). No matter the ethics methods that are taken on account (egoism, utilitarianism, moral intuition), it is important to keep a consistent (treat similar cases in the same way), universal (everywhere) and honorable behavior (maintaining the respect to human being as main point). Ethical wisdom is given by convergence of the methods and is a function of: prudence (long‐term thinking), benevolence (concern for others) and veracity (honesty and openness). It is very important to understand that, even though ambiguous, hardly ethic and definitely non ethic tactics may help to obtain relative benefits in the short or medium term, it is in the long term that they weaken the prestige, positioning and/or reputation (and therefore its effectiveness) as negotiator.

The Tendency to Evaluate ‐ Suspending Evaluation It is in the human nature (natural urgency) to try to judge, evaluate and approve or disapprove the comments of other persons, according to what is emotionally significant from our point of view. It is also frequent that we unconsciously try to disapprove opinions or interpretations different to ours, tending to qualify them as erroneous (or incorrect), only for being different to ours. In order to avoid or reduce this tendency, the interpretation of a situation we are facing should follow a rational and systematic process. We should first describe, interpret and then evaluate. In some cases it will be necessary to stop the evaluation until processing more information.

The Competitive Situation In this situation, what is most important is to capture value. It is a personal advantage performance situation. The bargaining zone refers to the area between the maximum that I can accept and the minimum that the other party can accept (or viceversa). The Bargaining Zone is the region between parties' reservation points. It is positive when parties' reservation points overlap and doesn't exist when there is no overlap. Agreement is possible when bargaining zones are positive and not possible when there is no reservation point overlap. It has been demonstrated that when this positive area (bargaining surplus) is greater, it is easier to enter into an agreement.

5 Negotiations, Final Paper – Jorge Calderón ‐ Global MBA 2008

The tactics used to capture value in tough negotiations include: information exchange and concessions. For an adequate information exchange, we should win the "preparation game" and determine our BATNA (best alternative to a negotiated agreement) before negotiating, since this is one of the most important sources of power. We must also be polite, have empathy, be nice, try to find out the other side's limit doing the best to determine our negotiating counterpart’s BATNA (crafting a dialogue that engenders much information exchange), asking (repetitively, even though we know the answer), try not to give information away, use the “90/10 rule” (in negotiations, 10% is made up of what happens to you, we cannot take action over it but 90% is decided by how you react), discrediting the other part arguments, improve your BATNA (we have to remember it is never as good as we would like and we have to keep searching out possible alternatives that may enhance our ‘walk away’ point.

Interests are self‐evident in formal zero‐sum games. Interests of your negotiating counterparts are not self‐ evident in multiple issue negotiations where each party possesses private information. In particular, information about your counterparts’ BATNA’s are often revealed only through the dynamics of negotiation.

The concessions include endurance, reciprocity, aggressive objectives, splitting the difference, overbiddings (people make estimates by starting from an initial value and adjusting to provide a final answer). This initial value is a psychological anchor: if it is too high, the estimate tends to be too high; too low, the estimate tends to be too low. It could help if you are certain of your counterpart’s BATNA; not necessarily if you are uncertain. Bear in mind at the moment of giving concessions that it is not possible to return once concessions are given, except when speaking in conditional mode. Give concessions one by one, looking for reciprocity. Use nibbling with sweeteners and wish‐lists. We must do the opening offer if the negotiation is ambiguous or if we feel that the other party is not prepared. In this sense, it is very important to determine the opening offer before the beginning of negotiations.

It is not advisable to reveal our BATNA unless it is very, very good. (very rare cases). We should not lie either about it, because we can back ourselves into a corner and fail to reach the agreement, nor try to convince our counterpart that her/his BATNA is no good, unless we have supportable evidence that it really is no good. We should beware of a boomerang effect (people often do the opposite of what you want them to do). If we are too tough we can blow the deal; if too soft, we can give away our bargaining surplus. We must try to make an offer in the bargaining zone, not outside. If we are certain of our counterpart’s BATNA, we must offer just slightly better. We should keep clear that being tough, we will probably obtain value in the agreement but hardly a probability of agreement, not discarding the probability of not obtaining any agreement.

There are other tactics for competitive negotiation: limited authority (make sure to negotiate with the adequate person), good cop/bad cop, bluff, appeals to ‘reason’, threats, the nibble, highball/lowball offers, chicken, intimidation, snow job, time pressure (we can advance or retard it), social pressure (one vs. several), social support. The main tactics to repel them during the negotiation include: to ignore them, discuss openly, answer

6 Negotiations, Final Paper – Jorge Calderón ‐ Global MBA 2008

with another similar (even though not always advisable) and trying to befriend them before the negotiation takes place.

Finally, it is advisable not to negotiate: When you’d lose the farm, when you’re sold out, when the demands are unethical, when you don’t care, when you don’t have time, when they act in bad faith, when waiting would improve your position and when you’re not prepared (Levinson, Smith & Wilson, 1999).

The Cooperative Situation This is a very different process from distributive bargaining. It refers to the way in which negotiators are capable of creating a process that conducts to the creation of value. In this situation, the most important thing is how to create and/or capture the maximum possible value. It is a mutual advantage performance situation. In this case, the parties should define their objectives in the first place and get involved in a process that permits both parties to reach them. The main tactics to create value include advancing common interests and making wise tradeoffs.

For getting advanced common interests, we have to consider: the possibility that one or both parties fail to perceive the integrative potential of the negotiating situation, the risks of a possible bad strategic representation, the transparency, the creativity and the possibility of creating coalitions and alliances. A high level of consciousness is also necessary on both parties, not only to obtain their objectives but also to do this by means of a cooperative approach oriented to solve problems. However, breakdowns also occur due to distributive assumptions about negotiating, the mixed‐motive nature of the issues (bear in mind that purely distributive or integrative situations rarely exist), or the negotiators’ previous relationship with each other.

Some needed important cooperative negotiation skills are: creating value, claiming value and building trust. In this sense, we must understand that to create a value and claim it are not excluding activities but they need each other in different stages of the negotiation (claiming value at a latter stage when the negotiators decide how to divide their joint gains). The construction of confidence between the parties is a basic point that will be discussed later, but nevertheless, we point out in advance that it should be capable of solving the honesty and trust dilemmas (two of the key paradoxes of negotiation).

For making wise tradeoffs, it is important to create value from difference, prioritizing, packaging, to make provisional agreements and to facilitate a trial and error process, all of them under an integrative negotiation process that includes: identifying and defining the problem, identifying interests and needs, generating alternative solutions, and evaluating and selecting alternatives. We must be conscious that integrative negotiation is not easy, especially for parties that are locked in conflict, defensiveness, and a hard‐line position.

Strategic Choice

7 Negotiations, Final Paper – Jorge Calderón ‐ Global MBA 2008

We have focused on two strategies, the interest‐based (or integrative, or cooperative) and position‐based (or distributive or competitive) bargaining. In Getting to Yes, the authors show us three approaches: hard, soft, and negotiation based in principles. Hard is essentially extremely competitive bargaining, soft extremely integrative bargaining (integrative can give more than what was prepared to give only to fulfill the interests of the other party) and principled negotiation is supposed to be between them, but closer to soft than hard.

Accordingly Lax and Sebenius, actually all negotiations are combinations of both approaches. As told before, negotiators try to "create value" by enlarging the pie as much as they can. But, also as mentioned before, inevitably, the pie will then need to be divided up in a distributive negotiation. In that way, all negotiation is a combination of creating and claiming value, not one or the other as sometimes suggested (Burgess, 2004).

As we have reviewed, there are different styles of negotiation, depending on circumstances, so there are also different strategies for different cases. It is important to identify if we are going to be competitive, cooperative or both. In order to be able to establish and carry on our strategy, we have to know some basic points like the approach or strategic preference of the other party, if there is a repeated interaction that can be interpreted as alliances, if the interests of the other party are individual or collective, if there is complexity in the negotiation, if the implementation is important, and if the certainty that the agreement will work for both parties. Finally, we have to develop and cultivate techniques for encouraging the other party to move away from win‐lose model towards a problem solving one, when needed. One of the most important techniques refers to the creation of conditions for cooperation, that is, to create an adequate environment for cooperation, not forgetting that the behavior is a function of the person and its environment.

Power Power is the ability to influence people or situations. With this definition, power is neither good nor bad. It is the abuse of power that is bad (Stark, 2000). The power is an important factor in negotiation. It comes mainly from three sources that can be significant in the negotiating process: information (including knowledge and expertise), resources and relationships (including position and reputation). Power can influence the outcome of a negotiation but if people have power but don't use it in the right way, it is of no value. BATNA (best alternative to a negotiated agreement) is one of the most important power sources. Power in negotiation comes from strengthening your own BATNA and weakening the options available to the other side. Before entering into a negotiation, leaders should know their own “best alternative to a negotiated agreement” (BATNA) and know as much as possible about the BATNA of other side. (Roger Fisher et. al., 1991).

It is necessary to understand that the only way towards a cooperative negotiation situation is through a balanced power. On other side, we should be aware that power can be an important source of corruption, for which reason we must be sensitive to needs of the other party, using the power as an arm for cooperation instead of using it for self benefit only.

8 Negotiations, Final Paper – Jorge Calderón ‐ Global MBA 2008

When preparing a negotiation, it is needed to know some answers: Who has what power in the relationship? Who controls resources? Who stands to lose the most if agreement isn’t reached? What power does the other person have to deliver what you hope for?

Trust Trust is considered to be confident positive expectations of another's conduct (Roy J. Lewicki, et al., 2003). Even though there is no guarantee that confidence takes to collaboration, there is enough evidence that lack of confidence leads to bad results. If there is lack of confidence, interdependence will be carried out mainly in defensive manner, and the persons involved will look for hidden meanings in the offers or comments of the other party, trying at the same time to discredit his/her arguments instead of working jointly.

If there is confidence, it is easier to share information, needs and positions and therefore, to seek joint solutions, while in lack of confidence, it will be easier for both to get into a positional bargaining, always thinking that the proposal of the other is a trick, involving in hard positions to defeat the other party. There are three factors that contribute to the level of confidence that one party may have on the other: the disposition of the individual about confidence (differences in personality), situation factors (strange to them, i.e. the opportunity they have to communicate adequately) and the previous story between the parties. As expected, value is a result from probability and value.

The main points for building trust are: transparency (not hiding something), concern for us, consistency, credibility, consistent with expectations, reputation, symbolic actions, escrow, good management of trust, always telling only the true, it is a learning process. Never intimidate, trick, or “beat” the other party.

c. Lessons about cases Auction: About Interdependence & Fairness This exercise is about the situation when "we put ourselves in somebody else's shoes". It is about needs, interests, perceptions, expectations and attitudes of the other side. It is also about consensus, perspective, limits and taking advantage of the situations. It also explains in a clear way the concept of interdependence between the parties. It finally puts into context the methods and importance of ethics in the negotiation (should I?, ought I?), the importance of fairness, equality, equity and need, as well as the understanding of the moral principles of Kant and the application of ethical wisdom.

Sloane Company Case: About, structuring, prioritizing, asking, listening & understanding This case mainly shows the importance of planning and the creation of a structure in the negotiation, for which the following has to be defined: 1) the context, 2) the problem (a full description), 3) the process and 4) the performance, elaborating a framework previously to the negotiation. Besides, some basic points have to be

9 Negotiations, Final Paper – Jorge Calderón ‐ Global MBA 2008

known: matters of high and low priority ‐both in the long term (the strategy) and in the short term (prioritization is critical in negotiations)‐, the interests of the other party and of third parties involved (in this case, those of the company), as well as the identification of side effects (the solution of a problem sometimes solves the others). Apart from the preparation, it is necessary to understand the difference between position, interest and option, to ask and "listen with all the body", to identify the needs (interests of the other party, to redefine the problem in own words to make clear that we understand the point of view of the other party (eliminating "the appearance of difference"), to identify, to aim and coordinate jointly efforts, trying to agree on a mutually satisfying solution that should be formalized. Other points of interest in this case are: personal traits and communication style, the relationship between disclosure and trust, the use of power in a managerial context and personal advocacy skills.

Used Car Sale: About capturing value & tough negotiating It shows a clear competitive situation, where the most important matter is to capture value. It also shows the importance of information in distributive situations and help us to understand the concept of BATNA when negotiating in a more free way and in a better position having a superior alternative than the one that is being offered to us. This alternative can be used as a source of power. Finally, it helps to understand the concept, tactics and concessions of tough negotiation.

Rio Copa Foods: About capturing value vs. creating value It demonstrates that it is not always correct to assume that what is good for us is bad for the counterpart (or viceversa). Apart from achieving specific objectives, in this case the performance of the negotiations is based not only on how much we obtain unilaterally (distributively) but also on how much value both parties can jointly achieve (by means of identification and jointly work on the objectives). If the priorities are identified in an adequate way, we can try to put them in one package and increase the size of the pie based on the cooperation. Due to the nature of the evaluation (the individual sum was also marked), the participants entered expecting a distributive negotiation. I think that the intention of that evaluation was to be treated as a competitive negotiation and then, starting from the errors, to find the conclusions that orient us to seek and/or create values rather than only distribute them (as happened in the case of the recruiter and candidate).

Recruiter & Candidate: About Prioritizing & creating value This is a clear exercise about the ways to maximize the value in a negotiation by the generation of confidence and the opening of a fluid communication (since instructions were given in the sense that the purpose of the exercise was to increase the size of the pie). The exercise demonstrates that it is also important to prioritize our objectives in order to be ready to find jointly alternative, taking on account what is more important for each one. It also explains clearly that more than one style of negotiation can be present in a negotiation, through different interests of negotiation: distributive (i.e. salary), common interest: win‐win and integrative interest (by priorities establishment).

10 Negotiations, Final Paper – Jorge Calderón ‐ Global MBA 2008

Viking Investments: About seeking creative solutions and maintaining relations Since the complexity of this case requires that all techniques and concepts about negotiation learned are applied, it shows that sometimes in spite of being angry or confronted, it is important to look for jointly alternative solutions that allow us to keep going. It is a good example to demonstrate that we must focus in the problem, separating the persons from the problem. It also shows that if the dispute and confrontation level is not avoided, it will be practically impossible to proceed with the negotiation. It is also useful for the application of the rational benevolence (I will help you because I need you). Additionally, it shows that insofar as the scene is more complex (with no apparent solution), the closer we should get to the other party to explore alternatives. Finally, it shows that if we focus in the long term and in the possibility of maintaining the relations in the future, we can concentrate better to the search for creative solutions. That is how we could invent new alternatives.

Accessing to Foreign Market: About Trust, Power and Teams It is a very interesting case, and in my opinion the best of all. It shows the power that can come from different sources. In this case, group A had the power of money, which made probable that its negotiation were of the competitive type (as it actually was). The power of B was to have two options, since it represented the best option to A and C, while the power of C, apart from having nothing to loose, was to have the last reunion with B, where everything could be defined.

On other side, as result of having multiple reunions, the topic of confidence takes special relevance, as well as empathy, which is a previous step to confidence. The concepts of "listening with all the body", understanding the interests of both parties, the concept of "break point", the pressure of time and the definition of the strategy to follow are also reviewed. In this case, the definition of BAINA, the advantage of seeing things clearly, making the most of different points of view of a multidiscipline team give strength to the team, which has to behave with integrity of criterion along the negotiation, in order to comply the objective.

We finally used the concept of "the final concession" to close the deal. To measure the performance we applied the concepts of: complete the task, keep and cultivate the relationship for future and learn something new.

2. PRACTICAL APPLICATION CASE: The First Order from Syria a. Context: I am founder partner and present General Manager of Agrovet Market Animal Health (AMAH, www.agrovetmarket.com), a company dedicated to produce and commercialize pharmaceutical veterinary products. In 2003, the company started its projection to international markets, working with exclusive distributors (one in each country), with whom the relationship was formalized through a contract. The main barrier for entrance to international markets is the sanitary registry of the products. For this reason the objective markets of AMAH are Latin America, Asia and Africa, where it is possible to register Peruvian products due to the similarity of requirements. This can take between 3 months to 4 years in the countries of these continents, due to the

11 Negotiations, Final Paper – Jorge Calderón ‐ Global MBA 2008

regulations of each country. The investment in sanitary registries may represent between US$ 100 and US$ 20.000. The contract provides that the payments due to registry have to be made by the distributor, and AMAH has the obligation to deliver all necessary documentation for this purpose (and make the local documentary payments that amount to US$ 500 approximately for each product). Once the registries are obtained, AMAH is obliged to deliver goods to the distributor free of charge for a value equivalent to the investment in registries.

In 2004, a commercial relationship was initiated (via Internet) and a contract was entered into with the firm Vetcare Syria for distribution in Syria, signed by its Manager Ing. Anas Nachawati (from now on the negotiator of the other party). The contract included prices based on FOB of the products, obviously including a clause indicating that they could be modified unilaterally with a sole notification of AMAH. The payment conditions agreed were by letter of credit at time terms in accordance to a range of FOB purchase value. The registries of 6 products were initiated in 2004, with an investment of US$ 1.000 per registry (previously consulted) in charge of Vetcare Syria according to the contract. During 2007 and 2008, due to changes occurred in the world (high oil prices, appreciation of Chinese Yuan: China is the main supplier of pharmaceutical input materials in the world) and in Peru (depreciation of USD, inflation) the prices changed in April 2008 an average of 20%. This variation was immediately informed to each client by personal letters, explaining the reasons.

Due to high requirements of Syrian authorities, the registry of the products was delayed more than expected, but finally in May 2008 Vetcare Syria announced the obtainment of registries for the 6 products in question. The time passed and by August 2008 there were no news about any first order of the client nor the registry documents were delivered to us (as stipulated in the contract), in spite of the continual requirements. In this sense, the registry area of AMAH got in contact directly with the sanitary authorities of the country, which confirmed via fax the registry of the products. The registry area got in touch immediately with the distributor and he answered in a manner somewhat offensive, demanding a direct communication with me. Between November 11 and 14, 2008 the most important fair of the trade was to be held in Hanover, Germany: Eurotier 2008 (http://www.eurotier.de/3512.0.html) for which reason the distributor asked me to attend to have a reunion there. The reunion was agreed for November 13 at the visitors' room of the fair. Four days before the trip, a client order arrived via fax for an amount of USD 60.000, indicating that it would be valid only if the prices in the contract were observed (that is 4 years before).

12 Negotiations, Final Paper – Jorge Calderón ‐ Global MBA 2008

b. Problems

AMAH VETCARE SYRIA A dissatisfied client. We want to establish a long term Investment in registries US$ 6.000 (money to be confidence relationship (top priority) collected) To deal with an Arab person, who according to his A company that takes advantage raising the prices customs is (apparently) used to distributive just before the registries are obtained is not negotiations trustworthy Loss of confidence to the client Investment in time to generate the registries

Investment in documentation of registries, US$ 3.000 Expectations in the market and expectations of growth for his company with the produts Investment in development of the products that Disgust for direct communication of the company

should start to be sold in Syria, approximately US$ with the authorities of the country 4.500 To confront continual tough negotiations To obtain the order under his conditions To negotiate with a very high opening offer He has no "legal" reasons (according to the contract) To obtain the order Ethics

This analysis table is referential and didactic since I did not make it on its time because I did not have the knowledge I have now. Now I will shortly relate the process that was followed in this reunion, which basically is part of the context of the case, because the knowledge of the course was applied in a second stage (after the classes) and will be discussed later. I make this to explain clearly what is a purely distributive bargaining negotiation.

I had not really made an adequate analysis, and the reunion took place in a distributive and competitive manner. Having not established priorities (as now), I focused in the order and not in the long term relationship that should have been the central point. To start, he came with his Sales Manager, and I was under the pressure of having to negotiate with two persons. The reunion was initiated with complains for maltreatment (for lack of confidence) when we communicated directly with the authorities to enquiry about the registries, then complains for the time and money invested and finally they told me that it was not serious to change our prices and they would not but anything with these prices (I understood later that this was their way to exert pressure on base of time to permit negotiate in a better way, so that complains and such were ways to press so that at the moment to reach to the central point I would be in disadvantage for "owing them something").

At this moment I did not know BAINA in a formal way, but I established that: I would not give up in the prices (apart from not being able to do so for company policies), but I could grant 10% of bonus in product with the first order (this is a regular approved policy to support the introduction of product whenever necessary). After a reunion of nearly 3 hours, with many moments in which the negotiation was about to break apart, we arrived to an agreement: the products would be supplied at current prices, but a bonus of 10% would be included for 3 products and 5% to the other 3 (based on the margin they have), additionally the free medicaments for the

13 Negotiations, Final Paper – Jorge Calderón ‐ Global MBA 2008

registries obtained would be recognized (US$ 6.000). The order amounted to US$ 65.000. To close the deal, I offered as "final concession" to send brochures in English and Arab containing the products that he needed. It was at this moment, when we have closed the negotiation that he proposed a modification in the form of payment.

I obviously did not accept at the beginning because the conditions were clearly agreed in the contract: Letters of Credit, but he insisted in having us to visit his suppliers, many of them European companies having a stand in the fair. I decided to go along with him, expressing that there was nothing I could do about the payment conditions. All his European suppliers gave the best references and all gave him free credit with 50% with the order at arrival of the goods and the other 50% after 90 days. I promised to study and said goodbye.

After confirming in the financial area, more investigation was made during several days and a quotation was sent offering as form of payment: 60% on advance and the other 40% at 90 days of shipment. He answered angrily asking why we had taken so much time and that his laws do not permit money transfer on advance without having made a shipment. We asked for a few more days and found out that what he was saying was true. We regretted not being able to ship goods to a new client without having sent at least 60%. This delayed our answer a few more days, responding that in spite of our good intentions the only correct option was to maintain the letter of credit as initial option.

The next day, an order arrived via e‐mail equivalent to 40% of the initial order, but including all the bonuses and registry payments in it, which obviously had not been negotiated and was not possible, since all extras were offered based on the volume of the order. At this moment the situation turned out to:

AMAH VETCARE SYRIA A client twicely disgusted. We want to establish a long Investment in registries US$ 6.000 (money to be term confidence relationship (top priority) collected)

To deal with an Arab person, who according to his A company that takes advantage raising the prices just customs is definitevely used to distributive negotiations before the registries are obtained, making me loose time and not having confidence in me, is not

trustworthy Confidence to the client lost twicely Investment in time to generate the registries Investment in documentation of registries, US$ 3.000 Expectations in the market and expectations of growth for his company with the produts Investment in development of the products that should To obtain the order under his conditions start to be sold in Syria, approximately US$ 4.500 Higher probability to face continual tough negotiations He has no "legal" reasons (according to the contract) To negotiate with an even higher opening offer To obtain the initial order

Ethics

This analysis was actually made, since by this time I had already taken the course.

14 Negotiations, Final Paper – Jorge Calderón ‐ Global MBA 2008

c. Process At this time the dilemma was how to carry out the distributive negotiation that had been generated towards one of integrative‐cooperative character, that was the desired situation at this moment. After analyzing the situation, knowing that a physical reunion was impossible, I decided not to call him by telephone but rather to write him a mail. This was made with the purpose of not leaving any loose ends, and after knowing him it was going to be very difficult to speak without being interrupted. In this sense, the e‐mail in Annex 1 was sent to him.

In that e‐mail, care was taken to: explain the reason for the delay of the e‐mail, apologizing for any involuntary offense, expressing how important this is for us and taking the conflict outside. We then focused on our real interests, which are to establish a long term relationship, turning round the situation and offering the negotiation in a cooperative way. We defended our interests in the long term: the relationship, and in the short term: the order, offering objective points to support our arguments.

"Putting myself in his shoes" I could see that for their culture they have a different perception of what is the commercial relation and that this form of negotiating is normal in them. That is why it was decided to avoid in the future competitive negotiations (with exception of situations when it is necessary due to their character), as well as to avoid answering any offense. Finally, the possibility to listen any feasible alternative that satisfies our interests is open. We were really "negotiating the form to negotiate".

The following day I received the e‐mail of Annex 2, I wrote back and the next day we were talking and obtaining his commitment to send the order during the next week according to the conditions initially established.

d. Performance The performance is measured in three dimensions:  Complete the task: The initial order was executed, the letter of credit is being opened and at these moments preparations are made to attend it.  Relationship: As result of the negotiation, the relationship became stronger, since I could express that our idea of a relationship is a long term strategic vision and from now on we will jointly attend any problem, looking for a cooperative solution. The course of time will establish the level of confidence necessary to support this long term relationship, based on the attitudes of each one, looking for always to satisfy the interests of both companies. That is, we achieved to bring the other party "to play our game", at least initially.  Learning: Yes, I learned a lot. I learned the way of thinking of somebody that is used to try to win all the time by means of negotiations purely competitive, and I set into practice a way to reorient his behavior (jiujitsu of the negotiation) to integrative attitudes, focusing to interests rather than to positions, initiating the negotiation in a cooperative way, trying to be reciprocal and match the other's behavior, and being pleasant and simple.

Thank you for your kind e‐mail but please be sure we have not lost the contact in past 2 weeks, I was trying to get the best possible conditions for you. Unfortunately I was not able to get them. I am writing you in Holiday time because you and your business are really important for us. I apologize if you have not been attended as you deserve, it was not our intention.

At first time, let me tell you that we want to build a long term‐relationship based in integrative (cooperative) negotiations. We showed you we are open to hear (and take care) you and your points (we offer a free credit condition that unfortunately could not be uses because of your laws). So please try to understand ours regarding the size of your order. Regarding it, I ask you to keep quantities so we can consider all the products in the order, including bonus products offered (5 and 10%). As you might know, we offered that bonus products based in the quantity you asked for during my trip to Hannover and it will be difficult to offer that quantity for an order that is a half of the planned when bonus negotiated and offered.

Please have in count it is really a non‐profit order (bonus product is a large quantity) so I think it is an objective point you might consider. I beg you to reconsider it.

At this time, we are just in the process of manufacturing TyloCombisone (first January week) and Cefa Milk (It has already started last week) so the labeling item is important for us at this time. In that way it is really important for us to know about exact quantities and exact label you are going to need for both of them.

If you have any other idea, please just let me know it so we can find a better solution. We are open to exchange ideas with you.